Monetary Policy Tweaked by the Central Bank of the Republic of Turkey

September 18, 2012

Monetary officials cut the overnight lending rate to 10.0% from 11.5%, while keeping the overnight borrowing rate unchanged at 5.0%.  A statement from officials declares that “narrowing the interest rate corridor would support financial stability,” then adding that “if deemed necessary, a measured step in the same direction may be taken in the forthcoming period.”  The central bank’s main policy reference rate, the one-week repo, was left at 5.75%, its level since a 50-basis point cut in August 2011.  That month also saw the overnight borrowing rate hiked by 350 bps from 1.5% to its current level of 5.0%.  The overnight borrowing rate in October 2011 was lifted to 12.5% from 9.0% and then cut in February of this year to 11.5% and now to 10.0%. 

The statement from officials expresses satisfaction that its prior policy initiative have as hoped help promote disinflation and a smaller current account deficit, products of an intended rebalancing of demand from the domestic to the external sectors.  Inflation is on track to fall further in the final quarter of 2012.  However, officials warn that rising prices for oil and other commodities could mitigate this desired development.  Thus, caution is needed in managing the one-week repo rate that spearheads its monetary stance.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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